ESPN isn’t the “must have” they’d like you to believe

Digitalsmiths, a research firm owned by TiVo, recently published a survey in which 81.6 percent of respondents claimed they’d be interested in a la carte television services. When Digitalsmiths asked consumers to come up with an ideal subscription package, turns out viewers would, on average, pay roughly $40 a month for a collection of just under 20 channels.

Here’s the interesting number: Only 35.7 percent would want ESPN in their custom lineup.

These percentages echo a recent Reuters poll, which found 77 percent of respondents saying they’d like a la carte pricing and 54 percent saying they wouldn’t pay a dime for ESPN.

Both polls aren’t surprising. They simply crystallize the conventional wisdom of sports as a niche product.

However, it doesn’t mean ESPN should be categorized as a throwaway channel. We can all recognize how the Worldwide Leader taps into the lucrative and highly loyal demographic of live sports viewers. The format is largely DVR-proof, pulls big ratings for high profile events and is attractive to advertisers, giving ESPN an incredible amount of leverage with cable and satellite companies. Imagine the uproar if college football fans couldn’t watch the College Football Playoff or casual NBA fans were unable to catch LeBron James in the playoffs because their service provider buried ESPN on a premium tier.

At last check, ESPN alone receives an average of just over $6 per household, per month from cable and satellite companies for the rights to carry the network. ESPN 2 and the rest of ESPN’s family of networks average far less, but the cost to carry these channels adds up quickly, and it is passed down to consumers. If you’re into sports, you’ll justify the increasing bills. But what about the large chunk of Americans who wouldn’t blink if ESPN suddenly disappeared from their box?

The difference now, and what worries cable and satellite companies, are the available viewing options found with a high-speed internet connection. Folks who don’t give a flip about catching a weeknight ACC regular season college basketball game on ESPN, but were subsidizing the network with a pricey bundle, became the early adopters of cord-cutting. With more popular shows making their way to streaming services, more viewers are joining the club.

Industry disruption is a threat to ESPN model

In a clear play to win back frustrated customers and ward off further defections, Verizon introduced “Custom TV” in April. Touting the ability to “pay for the channels you want, not the ones you don’t,” Verizon now offers a base package of channels and the addition of two “channel packs” for around $60. The seven packs to choose from are broken down into categories such as lifestyle, kids, entertainment and sports.

The consumer friendly offering didn’t sit well with Mickey Mouse, because taking ESPN and ESPN 2 out of Verizon’s standard channel lineup eats away at the sports network’s total household numbers. That matters because ESPN gets their per household fees whether subscribers watch the network or not, and fewer households reached means a hit to their bottom line. Disney wound up suing Verizon for an alleged breach of contract, stating Custom TV is “unfairly depriving” ESPN of “the benefits of its bargain.”

In the book “Those Guys Have All the Fun: Inside the World of ESPN,” the early chapters highlight how their sports empire was built on the cable subscriber fee model. It’s the same model that fueled the Big Ten Network’s revenue windfall and sparked college conference realignment hysteria. Thing is, the model is slowly eroding away as more consumers opt out. Sports fans are still watching in droves, but ESPN needs the majority of television viewers who never tune into a game to subsidize their model.

Could ESPN still afford to play keep-away from NBC Sports Network and FOX Sports 1, paying billions in property rights thanks to the chunk of dollars they receive from every subscriber? Doubtful, even with all the advertising cash.

How much would you pay for standalone ESPN?

Television viewers are accustomed to paying around $10 a month for on-demand streaming options. For instance, Hulu costs $7.99 a month, and Netflix plans start at $7.99. Amazon Prime is $99 for the year, while HBO Now is $14.99 a month. Sling TV offers a small bundle of live channels, including ESPN and ESPN 2, for $20 a month.

So you’d think a standalone ESPN app, with all their channels, would cost around the same. As Lee Corso would say, not so fast. ESPN’s perceived value and what the network actually needs to sustain their business model are vastly different.

One industry source I spoke to believes ESPN would have to charge sports fans at least $30 a month for an a la carte version of the networks to offset lost cable subscriber fees and advertising. MoffettNathanson Research believes Disney would have to charge $36.30 a month for ESPN to achieve the same level of reach it enjoys today.

At this point, we’ve reached a similar structure to European television. Channels such as Sky Sports, which carries popular properties like the English Premiere League, are not part of the basic service and run at $40 a month for the family of networks. Sky Sports even offers “day passes” for roughly $15. While hardcore American sports fans can justify similar prices here in the States, casual fans will balk and just catch the big event games on over-the-air networks.

So if you’re wondering why ESPN is reluctant to offer a standalone streaming service similar to HBO, follow the money.